Commodity Wrap - Oil, Natural Gas, Gold, Aluminium (03.01.2023)

Oil

• Commerzbank expects rebound in oil prices. Bank set a price target for Brent at $100 per barrel

• Oil prices reached the highest level since December 5, 2022 today on January 3, 2023. However, price reacted to an over-1% strengthening in USD and is currently trading around 1% lower on the day

• Seasonal pattern suggest that prices may try to regain bullish momentum in the first half of January

• China tries to show that Covid is no longer an issue for its economy. However, Europe strengthens restrictions for travelers coming from China

• Potential demand rebound in China is a key factor that may determine oil price trend in the first half of 2023

• Russian seaborne oil exports drop compared to average for whole 2022 but rebounds after an initial drop in December, when sanctions went live

• As much as 0.5 mbpd of Russian oil departing in last week of December had "unknown destination". Simultaneously, officials deliveries to Turkey have dropped what may suggest that this country will try to resell Russian product

• Nevertheless, it is expected that Russia will continue to lower its production and OPEC may continue to struggle with restoring production, what may lead to a deficit in a very short period of time

Russian seaborne oil exports rebound but remains below 2022 average. Source: Bloomberg

Amount of Russian oil shipped to 'unknown destinations' increases. Source: Bloomberg

WTI launched new week on a bullish note but significant USD strengthening on Tuesday capped gains and triggered a pullback to 25-session moving average. Oil remains in the upward channel. Source: xStation5

Natural Gas

• Gas prices in the United States and Europe continue to drop amid very high and above-average temperatures

• Temperatures in the United States rose rapidly following recent winter attack and are expect to last at least throughout the first half of January

• Moreover, it should be set that exports via Freeport LNG terminal remain significantly limited and full operations are not expected to be resumed until at least mid-January

• Having said that, there is still around 2 billion cubic feet of surplus gas in the United States, which would be exported in normal conditions

• Temperatures in Europe are also very high and gas inventories on the Old Continent are filling up again (thanks to countries that limited consumption the most)

• It is expected that energy crisis will not occur this year if inventories are filled above 50-60% at the end of winter. Currently they are 83% full

• Gas prices in Europe dropped to €75/MWh - below levels from the beginning of 2022 energy crisis

• Temperatures are expected to drop noticeably by the end of this week, what may lead to pick-up in prices on the Old Continent

Weather forecasts remain unchanged - high temperatures in the United States are expected to last until at least mid-January. Source: Bloomberg

Anomaly on the European gas market - inventories are rising in the middle of the heating period due to low usage (high temperatures). Source: Bloomberg

Key support near $5.00 per MMBTu has been broken at the end of 2022. The next important support zone is marked with lows from December 2021. Seasonal patterns suggest that price should trade sideways until early-March. Source: xStation5

Gold

• Central banks increase purchases of gold. Purchases amounted to almost 400 tonnes in Q3 2022. On the other hand, investment demand in Q3 2022 was just 33 tonnes

• However, such a low investment demand is driven mostly by ETF gold sales. Demand for physical demand stood at 350 tonnes in Q3 2022 and was the highest in at least 4 years

• Monthly data shows that PBoC bought gold in November 2022, for the first time since 2019. However, those are official data and it is rumoured that China has been purchasing gold without disclosing it

• Moreover, Barrick GOld CEO suggests that China may have bought as much as 200 tonnes of gold during the period, what would be a significant share of annual supply (over 5%)

• FOMC minutes and NFP report may trigger volatility in US yields and provide fuel for gold

ETFs kept gold holdings more or less unchanged for the past 2 months. Net positioning continues to rise. Significance of central bank demand also increases. Source: Bloomberg

Net change in central bank gold holdings in Q3 2022 has been the largest in at least 10 years. Whole 2022 could see the biggest increase in a long time. However, it is expected that China is purchasing even more than it is reporting. Source: Bloomberg

In spite of significant USD strengthening, gold is testing 4-month highs. US yields drop, providing support for precious metals. Source: xStation5

Aluminium

• Chinese manufacturing PMI remains below 50 pts, even in spite of a U-turn in Covid policy in China

• Production data will show real picture whether China has change its approach or whether there are still issues with sick employees

• Simultaneously, data for December showed significant drop in new home sales, what also puts under question potential recover in demand for industrial metals in China in the first half of 2023

• 100 largest developers in China saw sales drop of 30.8% YoY in December 2022

• Traders remain optimistic on China

• Aluminium drops at the start of 2023 but significant strengthening of Chinese yuan may give trader hope for recovery after 2022 losses

Aluminium prices plunged in 2022, similarly to 2008. However, we can observe the strengthening of the Chinese yuan currently, which in theory should provide support for aluminium prices. If China will indeed reopen its economy after pandemic and economic rebound occurs, aluminium may return to higher price levels. Source: xStation5